DDI Speech 07/10/96

Speech to the Boston Committee on Foreign Relations by John
C. Gannon, Deputy Directory for Intelligence.

Challenges of Intelligence Reform: The Case of Russia

Introduction

Thank you. Always a real kick
for me to be back in Boston. I grew up forty miles away in Worcester.
Several generations of my family have taken summer refuge in
Fenway Park. My father was for five years early in his career
a Boston police officer. I have many relatives and friends living
here. Boston is one of those justifiably self-centered communities,
the "hub" of Massachusetts on the map but the hub of
the universe to its proud residents. I remember reading once
that when the Titanic sank, the headline of the Boston Globe
was "Boston Woman Lost at Sea."

My job at CIA is to make sure
that intelligence analysis is both relevant and accurate. Today,
Id like to address how we see trends in Russia, including the
impact of the recent presidential election. These remarks may
serve to amplify the remarks of Professor Marshall Goldman; I
understand he spoke to you in May. Next, I'd like to turn briefly
to the broader challenges the Intelligence Community faces around
the world and how we are addressing them. President Dwight Eisenhower
once said, and I'm not kidding, "Things are more like they
are today than they have ever been before." I hope the
CIA has a clearer view of today and tomorrow. I'll be happy to
take any questions you have at the end of my remarks.

The Significance of the
Presidential Election

Let me start with a few words
about Yeltsin's recent electoral victory and what it means for
the democratic transition in Russia.

It was five years ago today
that Yeltsin took the oath of office as the first popularly elected
President of Russia in its 1,000-year history. The election held
one week ago was the first time that citizens of the independent
country of Russia elected their president.

Western democracies can take
considerable satisfaction in the electoral outcome. Over the
last two years, most analysts had warned that Russian voters longed
for either the Communist past or an imperialist future. When
given the choice between these options and reform, Russians overwhelmingly
opted to continue reform. Their support for reform, of course,
cannot always be interpreted as support for Yeltsin. In fact,
polls show that half of Yeltsin's supporters in this last round
would have preferred to vote for someone else.

This election gave Russian
citizens a clear choice between two different political and economic
models. The public took its civic responsibility seriously.
In fact, the turnout rate for this and other recent Russian elections--between
65 and 70 percent--far surpassed the rates of our own presidential
elections. And the vote occurred on schedule despite pressure
for postponement or cancellation from hard-liners in Yeltsin's
administration.

During both rounds of the presidential
election, the vote was held peacefully and, overall, freely and
fairly. Just as important, the losing side seems willing to abide
by the result. Zyuganov made heated claims about Yeltsin's unfair
advantages, but the Communist candidate accepted the runoff results
immediately and did not call for demonstrations.

Nevertheless, the Communists
are undoubtedly planning for future electoral battles. By the
end of this year, gubernatorial elections are scheduled in as
many as 52 of Russias 89 provinces. The Communist faction in
the State Duma will also concentrate on resisting many of Yeltsin's
legislative initiatives.

Why Did Yeltsin Win--And
What Did We Learn From the Election?

The Russians have come a long
way, but the election campaign showed that Russian democracy still
has a ways to go. Some of Zyuganov's protests were quite valid.
Yeltsin, for example, did dominate the mass media. He also mobilized
government personnel and funds to stage a meteoric rise in his
popularity ratings from single digits in early 1996. And there
are credible charges that he exceeded the legal limits for campaign
financing.

Another factor behind Yeltsin's
victory was his campaign's use of sophisticated campaign tactics
such as polling and his heavy reliance on TV advertising. And
as Time Magazine reported--or perhaps sensationalized--this
week, he also had the benefit of some experienced US campaign
consultants.

Yeltsin's summer resurrection
from a particularly gloomy political winter also results, I think,
from three other factors: Communist blunders, Yeltsin's fear tactics,
and the Lebed factor. The Communist campaign concentrated solely
on door-to-door campaigning rather than sophisticated media placements--they
lost the old-fashioned way. Zyuganov also failed to extend his
political base beyond the elderly, poor, and rural voters. Rather
than try to sway voters in the middle of the spectrum, Zyuganov
insisted on preaching to the choir and did not soften his hard-edged
message. Neither did he separate himself from some of his Stalinists
allies in the Communist camp. This, in turn, made it all the
easier for Yeltsin to employ his main tactic--scaring Russian
voters with his charge that Zyuganov would bring back the totalitarian
past. Last but not least, Yeltsins alliance with retired General
Aleksandr Lebed, his newly named security adviser, played a critical
role in altering the electoral math.

What Are the Implications
of Yeltsins Victory for Russian Policy?

We don't follow Russia because
its intrinsically interesting--though, frankly, it is. CIA exists
to provide intelligence on issues affecting US interests. The
fact remains that Russia is still a major nuclear power, and that
anti-US and anti-Western groups and states are seeking Soviet-era
systems and fissile material. Of course, Russia's domestic economic
and political policies directly affect US interests as well.
Events in Russia, moreover, will continue to have broader implications
for security in Europe--a region of vital interest to the United
States.

One way to look at how a Yeltsin
second term will shape up is to contrast it to what Zyuganov would
have offered Russia had he been elected. Even before his most
recent illness, Yeltsin clearly lacked the stamina and political
incentive to be the kind of zealous reformer he used to be. No
longer is Yeltsin the towering symbol of reform he was when he
mounted a tank in 1991 to push back the coup plotters.

Nonetheless, a second Yeltsin
term is certain to be much more open to the West than a Zyuganov
presidency would have been. Yeltsin will probably do more to
protect civil and political liberties than Zyuganov would have.
Knowing that he has, at most, only four years left in power,
Yeltsin may try to press hard for such measures as the privatization
of land or other reforms.

Chances are much better, however,
that Yeltsin's second-term record will be less coherent. Yeltsin
will face tremendous pressure to moderate some of the reform measures
already in place. Some advisers, for example, will argue that
privatization and freedom of movement within Russia fuel crime
and corruption. Yeltsin himself has said he wants to emphasize
law and order, the social safety net, and a more forceful foreign
policy.

What policies do we expect?

What do we now expect of Yeltsin
in terms of his new government and his domestic policies? The
President's decision to retain Chernomyrdin as Prime Minister
suggests he will lean toward reform, but more cautiously. Yeltsin
will probably retain his core goals--marketizing and stabilizing
Russias economy and establishing a pluralist state with relatively
protected civil liberties. He will probably try to fulfill the
conditions of the IMF's three-year credit, negotiating any deviations
made necessary by election campaign spending. He is also likely
to continue land reform and privatization--though he will curtail
the tainted loans-for-shares privatization scheme.

At the same time, we would
not be surprised to see some protectionist trade policies and
the continuation of state subsidies to select domestic industries
and agriculture. We also expect the influence and activity of
Russia's security services to remain significant.

On foreign policy, Yeltsin
is likely to give occasional voice to nationalist themes, which
have broad appeal across the Russian political spectrum. Some
advisers will argue for more forceful opposition to NATO enlargement,
a tougher sell on arms control, and revival of Russian relations
with Third World states that were closely allied with the former
Soviet Union.

On the issue of Chechnya, Russias
hesitancy in fulfilling the terms of the peace accord signed shortly
before the election suggests that Yeltsin is sanctioning or initiating
a harder line. Overall, the prospects for reestablishing peace
in Chechnya seem increasingly remote. We worry that this could
make the rebel forces more inclined to resort to terrorism again--either
inside Russia, or possibly, outside.

Russia's Economic and Political
Strides

Let me try to pull all this
in perspective.

Ten years ago--just a few weeks
short of the Reykjavik summit between Gorbachev and Reagan--few,
if any, of us could have imagined what Russia would look like
today. In 1986, the Soviet Union was ailing but very much alive.

Let me illustrate some of the
changes of the past ten years. Take a walk along the main street
of downtown Moscow--Tverskaya Street. In the old days, the street
was called Gorkiy Street, after the Communist writer. Long lines
of shoppers clogged the sidewalks in front of empty state-run
stores. Shoppers carried netted bags that they nicknamed "Just-in-Cases"--"just
in case" they found a store with a product worth buying.

On the Tverskaya Street of
1996, shoppers can choose from a wide range of colorful stores
bursting with food and consumer products from all over the world.
New construction is transforming the cityscape. The old Manezh
Square just outside the Kremlin is today hardly recognizable as
the place where Lenin once rallied crowds. Now, a very capitalist
shopping mall is going up, with a business center complete with
parking garage.

There have also been substantial
structural changes in Russia's economy. The defense budget has
been slashed by roughly 50 percent in real terms since 1992.
Entrepreneurs have started hundreds of thousands of new businesses,
which employ almost a third of Russian workers. More than 20,000
large enterprises and 100,000 small ones have been transferred
from state ownership under Russia's ambitious privatization program.
As a result, the private sector now accounts for more than 60
percent of Russia's gross domestic product.

Nearly all prices, once set
by the state, have been freed. Russia now has a functioning civil
code to govern market transactions and protect private property.
The state monopoly on foreign trade has been dismantled, and
market forces determine exchange rates. Inflation--which swelled
to two-hundred fifty percent per month shortly after the collapse
of the Soviet Union--has averaged about 3 to 4 percent per month
over the past 6 months. That's still high by our standards, but
its a significant achievement nonetheless.

Russia's political progress
has been nearly as dramatic as in the economic sphere. In a country
where religious activity was once all but banned, and churches
were dynamited by government authorities, there is now a religious
renaissance among both young and old. Even government officials
show up at services, hoping to tap into the powerful symbolism
of the church.

The print media are diverse
and free-wheeling, despite their struggles to stay afloat financially
without state subsidies. You heard that national television bent
over backwards to portray Yeltsin in a positive light before the
election. It's true. But it's also true that the Communists
and nationalist print media were left unfettered. Independent
television stations are springing up throughout the country.

Russians can now listen to
the outside world. Millions of Russians tap into CNN. And every
day thousands of Russians dial a modem to link up with the Internet
and chat with computer users across the globe. Such contact with
the outside world is the best guarantee against a return to totalitarianism.

I do not want to exaggerate
the extent of change in Russia nor underestimate the obstacles
that remain in its path. Much remains unchanged, particularly
in regions far from Moscow and St. Petersburg. The institutions
of civil society remain weak, and the rule of law often gives
way to Presidential edict. The transformation to the market has
wiped out the life savings of millions of Russians, crippled the
state-run social welfare system, and fostered high rates of crime
and corruption.

The growing disparity of income
that has resulted from the reforms has spawned resentment of the
so-called New Russians--the new class of entrepreneurs known for
their vulgarity and arrogance. For example, they tell the story
in Moscow about a New Russian who turns up at a Mercedes dealership,
where he proceeds to buy a top-of-the-line silver Mercedes. As
he is paying in cash, the salesperson suddenly stops counting
the money. The salesperson says: Wait a minute, Sir. Didn't
I see you just last week here, paying cash for the same make of
car, and silver too? The New Russian answers: Of course, my
good man. But in a week, my ashtray has filled up.

Resentment of change and nostalgia
for the Soviet past partly explain the 40 percent of the vote
that went to Zyuganov. We should also keep in mind that democracy
and the market took centuries to develop in the West.

No Going Back to the Old
System

The Russian system is by no
means a model of Jeffersonian democracy, but the country is not
likely to return to Soviet-style centralism. In the event a Communist
or hard-line government were to come to power, at least three
structural changes in the Russian system would hinder a return
to the bad old days.

First, Russia is now a state
in which powerful and diverse business interests have emerged.
Among these groups are new entrepreneurs, industrial leaders,
bankers, corrupt government officials, organized crime groups--and
members of the old Soviet elite. Not all of these people, obviously,
are disciples of Adam Smith. But they all share a common desire
to hold on to their new wealth and property, and they have the
clout to resist government efforts to take them away.

Second, over the past several
years, a great deal of power has devolved from the central government
in Moscow to regional governments in Russia's 89 territorial units.
Not all of the governments in these regions are reform-minded,
but most share one common interest: protecting their ability
to call the shots in their territory by resisting central control
from Moscow.

Finally, in addition to the
emergence of business interests and the growth of regional autonomy,
I would note that the telecommunications revolution will provide
Russians with greater and greater access to the outside world
in the coming years. This will continue to diminish the prospects
for a future authoritarian regime relying on the levers of propaganda
to sustain its rule.

So, What Will Russia Look
Like In Ten Years?

Let me now venture some personal
views on how I see Russia evolving over the next decade. Obviously,
these are not intelligence-based judgments. Although we cannot
know who will be Russia's next President, we can make some general
predictions based on the known trends now molding Russia's landscape.

First of all, Russia's industrial
decline is likely to bottom out--although progress could slow
down if a future Moscow government props up large money-losing
enterprises with massive subsidies. Whatever mistakes are made,
it would be extremely hard for the government to recreate Soviet-style
central planning. The private sector has already taken off with
the transfer of hundreds of thousands of enterprises to private
hands.

Nonetheless, Russia may well
become much more of a corporatist system, with Financial-Industrial
Groups holding increasing sway over resource allocations and political
decisions. With the growing influence of groups connected with
extractive resources, banking, and other key sectors, high-level
corruption will almost certainly be a major force.

Over the next decade, central
authorities probably will lose more influence over the regions.
With the devolution of power to the 89 provinces, regional disparities
are likely to grow. We do not foresee much chance that the integrity
of the Federation will be threatened, as many feared was happening
in 1992-1993--with one important exception. The Federation could
splinter if Moscow insists on reinstating strict central control
and takes away the powers that provincial authorities have come
to take for granted.

Russian citizens also have
come to take for granted the political freedoms that have flourished
under Yeltsin, and a civic society has begun to sink roots. The
public would react with great anger if Moscow tried to reinstate
a political dictatorship and take away free elections, a free
press, and freedom of religion and association. Support for democracy
will gain force as the generation that grew up under Communism
begins to die out. However, authorities may not face as much
opposition if they continue to impose more restrictions on travel
and residency--enacted in the name of fighting crime--or against
religions not indigenous to Russia.

Moscow will probably have some
limited success in reestablishing its sphere of influence in the
Near Abroad and among Third World countries that were allied with
the USSR. Nonetheless, Russia's sway in the international arena
will also be limited by its military and economic weakness. Russia
will probably also want to retain fairly good ties to the West
to secure financial aid and a voice in resolving regional conflicts.

Let me make three points as
we look ahead. First, Russia's transformation will continue for
decades. It is not a short-term phenomena. One of the most extreme
dangers, amidst much good news, in Russia is that political polarization
could result in violence and instability. The center of the political
spectrum is very weak, and wide ideological and political gaps
exist between old-line Communists, the nationalists, and Russia's
democrats. Few people appreciate how close the putchists in the
Russian parliament came to seizing power in October 1993, when
President Yeltsin had to rely on military force to retain control.
There are still signs that the military is disgruntled and suffers
from internal divisions. Although the Presidency remains in Yeltsin's
hands, the Communists remain the strongest political force in
the State Duma.

Second, although the nuclear
threat from Russia is far reduced, Russia retains tens of thousands
of nuclear weapons. The intelligence community will continue
to carefully monitor these weapons and will remain alert to the
possibility that they could fall into irresponsible hands.

Third, the rapid growth of
criminal activity in Russia presents the Intelligence Community
with a formidable challenge. Russian security officials say there
are now over 8,000 organized crime groups in the country. About
200 are large, sophisticated criminal organizations with operations
throughout the former Soviet Union and abroad. If Russian authorities
are unable to check the growth of organized crime, the impact
on reform and on Western interests could be profound.

Other Challenges to the
Intelligence Community

Russia, then, will continue
to be a high priority for the United States and for my analysts.

Let me turn now to a quick
survey of other challenges around the globe:

--Several nations threaten
regional stability with their formidable conventional military
capabilities and their attempts to acquire weapons of mass destruction.
Iran and Iraq are of particular concern. Iran continues
to divert scarce economic resources to its military buildup.
Tehran also supports terrorism and political violence, opposes
the Middle East peace process, and abuses human rights at home.

Despite his defeat in the Gulf war, Saddam Husayn of Iraq
remains determined to regain regional dominance. He is bent
on preserving elements of his special weapons programs. Although
weakened by the Gulf war and UN sanctions, the Iraqi military
remains the most formidable in the region.

Another destabilizing state is Libya. That country
has refused to abide by the terms of UN sanctions imposed on Tripoli
in the wake of Pan Am 103. Qadhafi's determination to retain
an aggressive chemical weapons program remains a big concern.

North Korea remains isolated, militaristic, and resistant
to reform. Over the past fifteen years, Pyongyang has devoted
perhaps a quarter of its Gross National Product to building a
1.1 million-man military machine that could launch an attack against
South Korea with little or no warning.

The potential for instability also remains high in Cuba.
While Havana's internal security apparatus remains formidable,
its slight loosening of governmental controls could, over the
long term, produce pressure for political change.

Finally, China, as you know, is undergoing profound
changes, and is emerging as a major economic, political, and military
actor in East Asia and the world. US relations with Beijing are
racked by problems stemming from security, human rights, and trade
concerns.

Even as we concentrate on military
and other threats from specific countries, nontraditional and
transnational problems are becoming ever more prominent
and important to American policy-makers.

Among the transnational issues, none is of greater concern
than the proliferation of weapons of massdestruction
and of advanced conventional weapon systems. At least 20 countries
have or may be developing nuclear, chemical, and biological weapons
and ballistic missile systems to deliver them. The recent bombing
of a US military residence in Saudi Arabia is only the most recent
reminder of the scourge of terrorism.

The huge profits that many crime groups reap from narcotics
trafficking, both in cocaine and heroin, make them threats
to legitimate political authority in many countries, particularly
among our neighbors in Latin America. The drug flow also threatens
the social fabric of our own and other societies.

Ethnic turmoil and humanitarian crises are another
key area of concern to the Intelligence Community. Over the last
few years, the Intelligence Community has been very active assisting
policymakers on the situation in Bosnia. Our Directorate also
provides information tailored to the needs of individual commanders,
and it is shared, as appropriate, with allied forces.

The Intelligence Community has provided similar support in
other areas of strife, such as Somalia, Rwanda, and Burundi.
These are prime examples of countries which may not normally be
"vital to the national security of the United States"
but which can quickly become of major interest to the President
and US policymakers.

Finally, last--but certainly not least--the Intelligence Community
is being asked to devote much attention to economic security
issues. As the United States becomes increasingly integrated
into the global economy--and other countries grow in technical
capacity and economic strength--these issues are likely to play
a more important role in US foreign policy.

Information Revolution

Making all these problems even
harder to handle is the speed with which they can unfold. The
communications revolution has vastly increased access to information
from around the world. That tidal wave of information must be
digested and carefully analyzed to inform the policymakers whose
world is often moving in "fast-forward." Boston Globe
columnist Ellen Goodman has rightly remarked, Information races
ahead, but understanding creeps at its own pace.

There is another dimension
of the information revolution that we are increasingly concerned
about--the threat of attack against our information systems and
information-based infrastructures. Hackers, criminal groups,
and foreign intelligence services consider these systems lucrative
targets. These threats will likely grow in the coming years.

Directorate of Intelligence
Strategy

Now, let me turn, in conclusion,
to the organization I manage, the Directorate of Intelligence,
and the view I have of its future. For the Directorate of Intelligence,
(or the DI, as we call it) change is an imperative, not an option.
In the past decade we have witnessed a historic reordering of
international relationships and an explosion of new technologies
that are having a major impact on our information-based business.
Change in the next decade likely will be equally dramatic.

First, as my global surf
just indicated, the priority issues are becoming more numerous
and more complicated:
Ten years ago, our primary analytic effort was against the Soviet
Union--its strategic forces, its politics and economy, and its
activities around the world--subjects on which CIA was widely
acknowledged to have special expertise. Over the next ten years,
the DI will be expected to provide faster, focused, and sophisticated
analysis on a much broader range of global, regional, and transnational
issues--all of high priority to the President and other key intelligence
consumers. On many of these issues, CIA will no longer be seen
to have a unique comparative advantage over other government agencies
and the private sector. We will need to concentrate our resources
on what intelligence does best, collaborate more aggressively
with outside experts, and invest early in the skills we will need
to meet these priorities.

Customers will be more diverse
and demanding:
In 1986, most DI customers--the US government agencies and military
leaders we serve--could still be serviced from Langley with written
analysis in standardized formats delivered by courier. In 2006,
all of our key customers will get personalized service and will
be served electronically in a host of tailored formats by a workforce
that will be increasingly deployed to Intelligence Community (IC)
centers of excellence or with consumers to meet their specific
needs.

The Information Revolution
will either propel us toward new heights of advancement or swallow
us up: In the mid-1980s,
the DI analyst communicated within CIA by pneumatic tube; thousands
of separate, unrelated files were maintained at Headquarters;
the mainframe and "dumb" terminals were the "latest"
in DI technology; a megabyte (1,000,000) was a lot of information;
and most analysts saw computer expertise as a specialty in others'
hands. Do you know, by the way, that in 1977 the president of
a major computer firm addressed a meeting of the World Future
Society here in Boston and said: "In the future there will
be no reason for any individual to have a computer in his home."
In 2006, every DI analyst will be adept in the use of his/her
own interactive terminal combining telephone, computer, and television;
worldnet will provide instant communications throughout the IC
and consumer world, and across the globe; encryption will be unbreakable
and fast; all information--for management as well as analysis--will
be digitized or digitizable; and a terabyte (1,000,000,000,000)
will be the norm for storage and retrieval of information. All
this in a single generation! I must ensure that my analysts have
the most advanced information systems and state-of-the-art analytic
tools.

Workforce will be more flexible:
Ten years ago, the typical DI officer expected to spend most
of his/her career based at Headquarters in Langley--whether or
not he/she switched jobs or areas of expertise--tied to the career
service of a regional or functional office. Interdirectorate
and cross-IC contacts existed, but stovepipes were the order of
the day. Ten years from now, the workforce will be far more dispersed
in various units and centers at Headquarters, across the Intelligence
Community and overseas, and "forward deployed" with
the intelligence consumer wherever he/she may be. A vigorous
IC interaction will be enhanced by full electronic connectivity
and a management stress on team building across the Community.

The DI will have greater
outreach: In 1986,
the interaction of DI analysts with academic and business experts
was largely confined to the few who attended our seminars or provided
contractual services. Our analysts often encountered suspicion
or hostility among the broader communities. In 2006, the outside
appearance of a DI expert will draw no more public attention than
the presence of an officer from any other government agency, and
analytic exchanges with outside academics and business experts
across the Internet will be common. The expertise we need is
out there. We need to be out there to get it! This is one reason,
by the way, that I am delighted to be here today.

....I'll stop here.
Thank you for your attention and for your hospitality. I'm sure
that you have thoughts of your own on the subject of Russia's
future and the challenges and role of the Intelligence Community.
I'd be happy to respond to questions and comments.